India: Effects of Tariffs and Nontariff Measures on U.S. ... - USITC

Under certain circumstances, FDI can be a driver <strong>of</strong> trade, but as noted above, that has
not necessarily been the case with regard to investment in <strong>India</strong>’s food <strong>and</strong> agriculture
sector. One exception may be the case <strong>of</strong> the barley used for brewing beer. Barley is a
significant input for breweries, <strong>and</strong> high-quality barley is difficult to find in <strong>India</strong>, where
barley is produced <strong>and</strong> used mostly for animal feed. Several beer industry representatives
<strong>and</strong> importers have noted that they would be interested in importing barley from the
United States, but U.S. exports cannot be certified to meet <strong>India</strong>’s requirement for ergotfree
barley, so brewers in <strong>India</strong> import from other, more expensive sources, primarily
Canada. 40
Foreign <strong>and</strong> domestic investment in <strong>India</strong>’s wine industry is in the very early stages, but
it is growing rapidly, <strong>and</strong> is encouraged in part by projected future increases in
consumption <strong>and</strong> a supportive FDI environment. According to one estimate, <strong>India</strong>’s
production <strong>and</strong> consumption <strong>of</strong> wine are expected to increase by 25–30 percent between
2008 <strong>and</strong> 2013, driven by increasing incomes, rapid urbanization, <strong>and</strong> the growth <strong>of</strong>
organized retail outlets in <strong>India</strong>. 41
Foreign firms can wholly own a production facility such as a winery but are not permitted
to purchase <strong>and</strong> farm most types <strong>of</strong> agricultural l<strong>and</strong>, including vineyards. Pernod Ricard,
a global company in the alcoholic beverage market, has built a winery named “Nine
Hills” in Nasik <strong>and</strong> is producing wines for the domestic market. Because <strong>of</strong> the ban on
agricultural l<strong>and</strong> ownership, Pernod Ricard has established contract farming
arrangements to purchase wine grapes from local farmers. The contracts require farmers
to follow specific production methods, dictated by a Nine Hills viticulturalist who
educates local farmers on wine grape production. Many <strong>of</strong> these farmers have long
experience growing table grapes but have switched because wine grapes sell at
significantly higher prices. 42
The central government <strong>of</strong>fers some support for foreign investors in the wine industry,
including:
direct subsidies for winery development, approximately 25–33 percent <strong>of</strong> start-up
costs for capital investments in wineries, up to $160,000;
capacity-building initiatives, including technical training <strong>of</strong> workers;
research assistance <strong>and</strong> assistance in establishing a laboratory; <strong>and</strong>
approval <strong>of</strong> the formation <strong>of</strong> a National Wine Board, intended to be a public-private
partnership that will advocate for growth initiatives for the <strong>India</strong>n wine industry. 43
Although the distilled spirits industry in <strong>India</strong> is open to FDI, global spirits companies
tend to export to <strong>India</strong> even though existing tariffs are high, rather than establish
operations within <strong>India</strong> <strong>and</strong> produce locally because certain spirits are distinctive
products <strong>of</strong> particular countries or regions. For instance, genuine Scotch whiskey must be
produced in Scotl<strong>and</strong>, <strong>and</strong> genuine bourbon must be produced in the United States.
40 Industry representatives, interview by Commission staff, Gurgaon, <strong>India</strong>, June 5, 2009; industry
representatives, interview by Commission staff, Washington, DC, June 19, 2009. See chapter 6 for additional
discussion <strong>of</strong> NTM restrictions that apply to barley.
41 Rabobank, “Executive Summary,” February 2008.
42 According to an industry representative, table grapes sell for Rs. 10–12 per kilogram <strong>and</strong> wine grapes
for Rs. 28–38 per kilogram, although production costs for wine grapes may also be higher than for table
grapes. Industry representatives, correspondence with Commission staff, March 12, 2009.
43 Industry representative, correspondence with Commission staff, March 12, 2009.
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